Main risks and risk management actions
The most significant risks for Sponda’s operations in 2015 were the sale of properties that are significant with regard to the implementation of the company’s strategy, a decline in economic occupancy rates resulting from a slowdown in economic growth, a loss of rental income due to tenant insolvency, the availability of financing, and interest rate fluctuations. With regard to Sponda’s Russian business operations, general macroeconomic development, the exchange rate risk and differences between Russian and Finnish legislation and the way the authorities operate in the two countries were the main factors causing risks and uncertainty.
Sponda’s risk management was in line with its objectives in 2015 and no substantial risks materialised.
By implementing effective risk management measures, Sponda was successful in significantly reducing the probability of key risks materialising and mitigating their estimated effects.
Risk assessment for 2015 without risk management actions and after risk management actions
1. Fall in economic occupancy rate
Sponda’s property ownership is mainly located in prime areas in Helsinki and Tampere, which are attractive areas regardless of the market situation. Sponda is selling properties that are not within these strategic areas. Sponda is continuously developing its customer service through measures such as more detailed property service surveys and the launch of more flexible lease models.
2. Decline in tenants’ solvency
Sponda carries out regular checks to monitor tenants’ solvency and changes therein. Most tenants submit a security deposit corresponding to three to six months’ rent at the start of their tenancy. The company has a diverse tenant base representing a wide variety of sectors. Due to its broad tenant base, Sponda is not dependent on individual major clients.
3. Availability of financing
Risks related to the availability of financing are mitigated by using credit agreements of varying lengths, a broad financing base, credit limits and by maintaining the company’s reputation as a reliable debtor. In 2015, Sponda refinanced a bilateral loan of EUR 115 million and a syndicated credit limit of EUR 80 million, and issued a EUR 175 million corporate bond.
4. Interest rate risk
Sponda’s hedge level for interest rate must be at least 60 per cent and at most 100 per cent. Fixed-rate loans and interest rate derivatives are used to balance the effect of changes in the market interest rates.
5. Exchange rate fluctuations
Sponda’s rental income in Russia is paid in US dollars and Russian roubles. Large part of the rents paid in roubles are tied to the US dollar or euro exchange rate. The exchange rate risk arising from the use of the rouble is reduced by the fact that a significant portion of the company’s own expenses in Russia is also paid in roubles. Sponda hedges foreign currency-denominated future net cash flows for a period of six months. The company’s investments in Russia are mainly funded in euros from the parent company balance sheet.
6. Russian macroeconomic development
Sponda is a local operator with an office in Moscow. The company’s portfolio in Russia consists of high-quality properties in prime locations. According to Sponda’s updated strategy, the company is planning to exit the Russian market within 1–3 years. Sponda uses a local external partner in its operating activities to ensure the continuity of operations.